DEVELOPING PRICING STRATEGIES AND PROGRAMS MM Kui Ateneo Graduate School of Business Top 10 Concepts
Outline:  Pricing… <ul><li>Must be integral in marketing mix (why?) </li></ul><ul><li>Involves both buyers and sellers (ho...
Outline: Pricing…  <ul><li>Employs several methods (what?)  </li></ul><ul><li>Isn’t just about “lowest price” (why?) </li>...
Concept 1: Pricing is an integral part of the marketing mix <ul><li>Only element that produces revenue </li></ul><ul><li>C...
Concept 2: Buyers are not just “price takers” <ul><li>Understand consumer pricing psychology </li></ul><ul><li>Price-quali...
Concept 2: Buyers are not just “price takers” <ul><li>Reference prices </li></ul><ul><ul><li>Fair price </li></ul></ul><ul...
Concept 3: A clear objective is essential for pricing decisions <ul><li>Clearer objective = easier price setting </li></ul...
Concept 4: Pricing must always respond to the times <ul><li>Consider your customers </li></ul><ul><ul><li>Will they buy at...
Concept 4: Pricing must always respond to the times <ul><li>Consider your competitors </li></ul><ul><ul><li>Why change pri...
Concept 4: Pricing must always respond to the times <ul><li>Consider the environment </li></ul><ul><ul><li>What is the cur...
Concept 5: Base your price on your competitors’, and anticipate a response <ul><li>Add/deduct price from nearest competito...
Concept 6: Select the best pricing method for you  <ul><li>3 major considerations </li></ul><ul><ul><li>Costs = price floo...
Concept 6: Select the best pricing method for you  <ul><li>6 price-setting methods </li></ul><ul><ul><li>Mark-up </li></ul...
Concept 7: Pricing is not always about “lowest price” <ul><li>Most consumers are not too price sensitive provided: </li></...
Concept 7: Pricing is not always about “lowest price” <ul><li>Avoid these traps: </li></ul><ul><ul><li>“Soft” list price <...
Concept 7: Pricing is not always about “lowest price” <ul><li>Discounts are good for: </li></ul><ul><ul><li>Early payments...
Concept 8: Price differentiation is a useful tool <ul><li>Offer unique bundle to meet needs precisely </li></ul><ul><li>3 ...
Concept 8: Price differentiation is a useful tool <ul><li>Types of 3 rd  degree: </li></ul><ul><ul><li>Customer segment (m...
Concept 9: Advertising allows a product to boost its price <ul><li>Average quality + low advertising = average price </li>...
Concept 10: Price increases must not alienate customers <ul><li>Factors resulting to price increase: </li></ul><ul><ul><li...
Concept 10: Price increases must not alienate customers <ul><li>Consumers prefer regular small price increases </li></ul><...
Concept 10: Price increases must not alienate customers <ul><li>Alternative approaches: </li></ul><ul><ul><li>Shrink amoun...
Summary:  Pricing… <ul><li>Signals a brand’s position in the market </li></ul><ul><li>Is also dictated by the buyers </li>...
Outline: Pricing…  <ul><li>Employs several methods </li></ul><ul><li>Should not be all about “lowest price” </li></ul><ul>...
My Conclusion:  Pricing should be the foremost concern, as it: <ul><li>reflects a product’s position </li></ul><ul><li>inf...
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ch14 pricing strategies

  1. 1. DEVELOPING PRICING STRATEGIES AND PROGRAMS MM Kui Ateneo Graduate School of Business Top 10 Concepts
  2. 2. Outline: Pricing… <ul><li>Must be integral in marketing mix (why?) </li></ul><ul><li>Involves both buyers and sellers (how?) </li></ul><ul><li>Derived from company’s objectives (what?) </li></ul><ul><li>Changing (how?) </li></ul><ul><li>Should consider competitors (why?) </li></ul>
  3. 3. Outline: Pricing… <ul><li>Employs several methods (what?) </li></ul><ul><li>Isn’t just about “lowest price” (why?) </li></ul><ul><li>Differentiation responds to differing needs (how?) </li></ul><ul><li>Can be boosted by advertising (how?) </li></ul><ul><li>Must be increased carefully (how?) </li></ul>
  4. 4. Concept 1: Pricing is an integral part of the marketing mix <ul><li>Only element that produces revenue </li></ul><ul><li>Communicates product/brand placement, image, quality, value </li></ul><ul><li>Major determinant of buyer choice </li></ul>
  5. 5. Concept 2: Buyers are not just “price takers” <ul><li>Understand consumer pricing psychology </li></ul><ul><li>Price-quality inferences </li></ul><ul><ul><li>Higher price = Higher quality </li></ul></ul><ul><ul><li>Higher price = Exclusivity </li></ul></ul><ul><li>Price endings </li></ul><ul><ul><li>“9” endings </li></ul></ul><ul><ul><li>Process price in left-to-right manner </li></ul></ul>
  6. 6. Concept 2: Buyers are not just “price takers” <ul><li>Reference prices </li></ul><ul><ul><li>Fair price </li></ul></ul><ul><ul><li>Last price paid </li></ul></ul><ul><ul><li>Upper- / Lower-bound price </li></ul></ul><ul><ul><li>Competitor price </li></ul></ul><ul><ul><li>Expected future price </li></ul></ul><ul><ul><li>Usual discounted price </li></ul></ul>
  7. 7. Concept 3: A clear objective is essential for pricing decisions <ul><li>Clearer objective = easier price setting </li></ul><ul><li>5 objectives: </li></ul><ul><ul><li>Survival </li></ul></ul><ul><ul><li>Maximum current profit </li></ul></ul><ul><ul><li>Maximum market share (Chinese style) </li></ul></ul><ul><ul><li>Maximum market skimming (technology) </li></ul></ul><ul><ul><li>Product-quality leadership (cars) </li></ul></ul>
  8. 8. Concept 4: Pricing must always respond to the times <ul><li>Consider your customers </li></ul><ul><ul><li>Will they buy at my current price? </li></ul></ul><ul><ul><li>How will they respond to price change? </li></ul></ul><ul><ul><li>How can I use pricing to entice? </li></ul></ul>
  9. 9. Concept 4: Pricing must always respond to the times <ul><li>Consider your competitors </li></ul><ul><ul><li>Why change price? </li></ul></ul><ul><ul><li>Price change temporary or permanent? </li></ul></ul><ul><ul><li>What will happen if I don’t respond? </li></ul></ul><ul><ul><li>Will other competitors respond? </li></ul></ul><ul><ul><li>How will competitors respond to my response? </li></ul></ul>
  10. 10. Concept 4: Pricing must always respond to the times <ul><li>Consider the environment </li></ul><ul><ul><li>What is the current trend in pricing? </li></ul></ul><ul><ul><li>Is this trend suitable for my industry? </li></ul></ul><ul><ul><li>How to be visible on the internet? </li></ul></ul><ul><ul><li>Can freemium concept apply to my product? </li></ul></ul>
  11. 11. Concept 5: Base your price on your competitors’, and anticipate a response <ul><li>Add/deduct price from nearest competitor’s price </li></ul><ul><li>Change in price can provoke a response </li></ul><ul><li>Always research on competitor customers’ loyalty </li></ul>
  12. 12. Concept 6: Select the best pricing method for you <ul><li>3 major considerations </li></ul><ul><ul><li>Costs = price floor </li></ul></ul><ul><ul><li>Customer value perception = price ceiling </li></ul></ul><ul><ul><li>Competitor & substitute price = orientation point </li></ul></ul>
  13. 13. Concept 6: Select the best pricing method for you <ul><li>6 price-setting methods </li></ul><ul><ul><li>Mark-up </li></ul></ul><ul><ul><li>Target-return </li></ul></ul><ul><ul><li>Perceived-value </li></ul></ul><ul><ul><li>Value pricing </li></ul></ul><ul><ul><li>Going-rate </li></ul></ul><ul><ul><li>Auctions </li></ul></ul>
  14. 14. Concept 7: Pricing is not always about “lowest price” <ul><li>Most consumers are not too price sensitive provided: </li></ul><ul><ul><li>There are few substitutes </li></ul></ul><ul><ul><li>They are resistant to change </li></ul></ul><ul><ul><li>They think the higher price is justified </li></ul></ul><ul><li>Pay more for features, warranty, quality, support </li></ul>
  15. 15. Concept 7: Pricing is not always about “lowest price” <ul><li>Avoid these traps: </li></ul><ul><ul><li>“Soft” list price </li></ul></ul><ul><ul><li>“Low-quality” image </li></ul></ul><ul><ul><li>Fragile market share </li></ul></ul><ul><ul><li>Shallow-pockets </li></ul></ul><ul><ul><li>Price wars </li></ul></ul>
  16. 16. Concept 7: Pricing is not always about “lowest price” <ul><li>Discounts are good for: </li></ul><ul><ul><li>Early payments </li></ul></ul><ul><ul><li>Volume purchases </li></ul></ul><ul><ul><li>Off-season buying </li></ul></ul><ul><ul><li>Promotions </li></ul></ul>
  17. 17. Concept 8: Price differentiation is a useful tool <ul><li>Offer unique bundle to meet needs precisely </li></ul><ul><li>3 degrees: </li></ul><ul><ul><li>1 st – based on demand intensity </li></ul></ul><ul><ul><li>2 nd – based on volume </li></ul></ul><ul><ul><li>3 rd – based on buyer class </li></ul></ul>
  18. 18. Concept 8: Price differentiation is a useful tool <ul><li>Types of 3 rd degree: </li></ul><ul><ul><li>Customer segment (museums) </li></ul></ul><ul><ul><li>Product form (Evian) </li></ul></ul><ul><ul><li>Image (Marriot/Holiday Inn) </li></ul></ul><ul><ul><li>Channel (Coke) </li></ul></ul><ul><ul><li>Location (concerts) </li></ul></ul><ul><ul><li>Time (buffets) </li></ul></ul>
  19. 19. Concept 9: Advertising allows a product to boost its price <ul><li>Average quality + low advertising = average price </li></ul><ul><li>Average quality + high advertising = higher price </li></ul><ul><li>High quality + high advertising = highest price </li></ul>
  20. 20. Concept 10: Price increases must not alienate customers <ul><li>Factors resulting to price increase: </li></ul><ul><ul><li>Cost inflation </li></ul></ul><ul><ul><li>Over demand </li></ul></ul><ul><ul><li>Under supply </li></ul></ul><ul><ul><li>Additional features </li></ul></ul>
  21. 21. Concept 10: Price increases must not alienate customers <ul><li>Consumers prefer regular small price increases </li></ul><ul><li>Give advance notice </li></ul><ul><li>Make low-visibility price increases </li></ul><ul><ul><li>Eliminate discounts </li></ul></ul><ul><ul><li>Increase minimum order </li></ul></ul><ul><ul><li>Curtailing low-margin products </li></ul></ul>
  22. 22. Concept 10: Price increases must not alienate customers <ul><li>Alternative approaches: </li></ul><ul><ul><li>Shrink amount of product </li></ul></ul><ul><ul><li>Substitute less expensive materials </li></ul></ul><ul><ul><li>Reduce/remove product features/services </li></ul></ul><ul><ul><li>Use less-expensive packaging </li></ul></ul><ul><ul><li>Reduce sizes or models offered </li></ul></ul><ul><ul><li>Create economy brands </li></ul></ul>
  23. 23. Summary: Pricing… <ul><li>Signals a brand’s position in the market </li></ul><ul><li>Is also dictated by the buyers </li></ul><ul><li>Is easier with a clear objective </li></ul><ul><li>Is changing </li></ul><ul><li>Influences competitors </li></ul>
  24. 24. Outline: Pricing… <ul><li>Employs several methods </li></ul><ul><li>Should not be all about “lowest price” </li></ul><ul><li>Differentiation responds to differing client needs </li></ul><ul><li>Can be boosted by advertising </li></ul><ul><li>Must be increased without offending customers </li></ul>
  25. 25. My Conclusion: Pricing should be the foremost concern, as it: <ul><li>reflects a product’s position </li></ul><ul><li>influences buyer choices </li></ul><ul><li>initiates responses from competitors, and </li></ul><ul><li>Impacts bottom-line income </li></ul>
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